Redundancy: basic information

This article discusses the rights and responsibilities of both employers and employees relating to redundancy as set out by the Employment Relations Act 1996 (ERA).

Definition of redundancy

The phrase "to be made redundant" is sometimes used to mean to be dismissed. This is not exactly correct. Neither in law nor in the English language does being made redundant mean to lose a job or be sacked. Rather, "being redundant" means being superfluous or excessive to requirements.

Redundancy is a reason for dismissal and is not itself dismissal.

The 1965 Redundancy Payments Act gave the statutory right to redundancy pay to employees dismissed by reason of redundancy and since then the expression has become a common part of general language.

Redundancy has two different meanings for the purposes of UK employment law. One derives from UK legislation and the other from European law.

According to the Employment Relations Act 1996:

An employee who is dismissed shall be taken to have been dismissed by reason of redundancy if the dismissal is attributable wholly or mainly to the fact that:

the employer has ceased, or intends to cease either to carry on the business for the purpose of which the employee was employed, or to carry on the business in the place where the employee was employed.

or

the requirements of that business either for employees to carry out work of a particular kind or at a particular place, have ceased or diminished, or are expected to cease or diminish.

Does redundancy amount to unfair dismissal?

Redundancy is not automatically unfair dismissal, although a dismissal “by reason of redundancy” may be unfair if the facts warrant it.

As with any type of dismissal, it is essential for the employer to go through the statutory disciplinary and dismissal procedures introduced in October 2004. Failure to do so will result in the dismissal as a result of redundancy being unfair dismissal, with the consequences that automatically follow.

Whether such a dismissal is in fact fair or unfair will turn on whether an employment tribunal considers that the employer acted reasonably in treating the redundancy "as a sufficient reason for dismissing the employee".

Redundancy pay

Quite separately from any right he or she may have to statutory redundancy pay, an employee may, if his employment agreement so provides, be entitled to contractual redundancy pay.

For the rest of this article, we concern ourselves only with statutory redundancy pay.

This type of pay is calculated according to a formula set out in ERA 1996. The application of the formula is:

Half of one week's pay for each full year worked between his 18th and 22nd birthday

One week's pay for each year worked between 22nd and 41st birthday

One and a half week's pay for each year worked after 41st birthday

Only the most recent 20 years are taken into account for the purposes of this calculation if a long service employee is being dismissed.

Service before age 18 is not taken into account.

A week's pay for those on a fixed salary is assessed by reference to pay in the final week of employment. For those on variable pay, there are special rules based on the average weekly pay of the previous 12 weeks.

The entitlement to be paid is in addition to contractual entitlements. A redundant employee is fully entitled to his proper notice of dismissal or pay in lieu and any other payments to which he may be entitled pursuant to contract, as well as to statutory redundancy pay.

Full time to part time

For avoidance of doubt, it is possible, although not common, that in law a change from full time employment to part time employment can count as a dismissal by reason of redundancy followed by re-engagement on new terms. The question depends on whether on the facts of any particular case the statutory definition of redundancy is satisfied.

Whether the dismissal in such a case is or is not unfair dismissal is a separate question.

There is a fine line between a situation where the employee's new job is the same as his original full-time job saves that certain terms and conditions of employment have been altered. This is for the tribunal to decide.

Age limits

Service before a person's 18th birthday does not count in pay calculations. This is one of the few differences between calculations of basic award based on unfair dismissal and those based on statutory redundancy pay.

Similarly, an employee made redundant after his 65th birthday does not qualify for this type of statutory pay.

Alternative employment

An employee who unreasonably refuses reinstatement, or an offer of suitable alternative employment, in either case to be available within four weeks of his dismissal, will not be entitled to statutory redundancy pay.

However, if an employer has alternative work available but does not offer it to the redundant employee, the dismissal of that employee may well be unfair, entitling the employee to compensation greater than he would get as redundancy pay.

Public sector workers

Crown and civil servants are not eligible for statutory redundancy pay. However, their terms and conditions of service usually give those equivalent or better rights. These are contractual not statutory rights.

Local Authority staff and other public sector employees who are not civil servants are eligible for statutory redundancy pay under normal rules and are eligible for special treatment under Local Government Regulations.

Special provision is made to preserve statutory redundancy pay rights of public sector employees, including local authority staff, if their employment is transferred from one public sector employer to another, as they cannot take the benefit of the associated employer rules that apply in the private sector.

Members of the armed forces are not entitled to statutory redundancy pay.

Selection for redundancy

Unfair dismissal compensation has a normal absolute maximum. Thus an employee who has been made redundant may well seek grounds for claiming that his redundancy dismissal was unfair dismissal. Improper selection for redundancy is one such ground.

Another relevant factor for newer employees is that the qualifying period of continuous employment for unfair dismissal claims, normally one year since June 1999 and sometimes zero, is less than the two year period required for redundancy pay claims.

Selection of employees for redundancy can be unfair on general grounds or because statute so provides. Employers are well advised to keep careful records so that, if necessary, they can demonstrate to an employment tribunal that redundancy selection was fairly and properly handled.

Redundancy dismissal is automatically unfair dismissal if the selection for redundancy was:

for any of the reasons specified in ERA 1996

related to trade union activity/membership

The ACAS advisory booklet on "Redundancy handling" contains a section on "Selection Criteria". This booklet should be carefully studied in any situation in which questions relating to proper selection for redundancy may arise.

Sometimes, redundancy can be unfair because it might have been more appropriate to select a different employee. There are many different answers relating to the different circumstances involved and therefore employers should think thoroughly through their decisions when selecting an employee for redundancy.

Written details of payment

On making a redundancy payment an employer has a legal duty to give the employee a written statement showing how it was calculated.

An employer who does not do this can be penalised in two ways:

He will be committing a criminal offence and risks a fine.

There is a possibility that the employee will plead that the money paid to him was not statutory redundancy pay and therefore a tribunal will make the employer pay a second time.

Further information

We offer documents relating to redundancy. You can find a checklist for redundancy that helps you meet each stage of the process, and a pack of template letters to employees.

Please note that the information provided on this page:

Does not provide a complete or authoritative statement of the law;

Does not constitute legal advice by Net Lawman;

Does not create a contractual relationship;

Does not form part of any other advice, whether paid or free.

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